The government is putting millions of Medicare dollars at risk by authorizing fictitious sellers of wheelchairs, prosthetics and other medical supplies to submit reimbursement claims with only limited review, congressional investigators say.

The study by the Government Accountability Office obtained by The Associated Press sought to follow up on oversight gaps that have plagued the Centers for Medicare and Medicaid Services since at least 2005. Roughly $1 billion of the $10 billion in annual Medicare payments the government makes for medical equipment are later deemed improper.

The investigation found that CMS approved two companies in the past year for Medicare billing privileges that the GAO had set up as sham businesses. The companies did not have clients or medical inventory to supply prospective Medicare patients.

These fictitious suppliers, based in Maryland and Virginia, won privileges even though GAO investigators deliberately provided the government with sketchy information and false documents that offered little assurances the companies were legitimate.

“This sting operation proves that there are gaps in the system and that scam artists can exploit—and are exploiting—those gaps,” said Minnesota Sen. Norm Coleman, the top Republican on the Senate Homeland Security and Governmental Affairs subcommittee that requested the report.

In response to the findings, the center agreed there were problems with its enrollment procedures. The agency said it recently put in place new standards that require medical suppliers to be certified. The goal is to help ensure medical suppliers meet quality standards before they receive Medicare billing privileges.

Among other changes are:

–requiring that suppliers keep supporting paperwork from doctors.

–limiting use of cell phones and pagers as a supplier’s primary business number.

–setting up a new competitive bidding process for medical equipment.

But investigators noted that CMS had made promises since at least 2005 to fix problems in its supply program and achieved only limited success. They said the government’s approval of their two sham companies was alarming because once a supplier attains Medicare billing privileges, it easily can get a doctor’s ID code fraudulently and begin submitting claims.

“If real fraudsters had been in charge of the fictitious companies, they would have been clear to bill Medicare from the Virginia office for potentially millions of dollars worth of nonexistent supplies,” according to the GAO report.

The new oversight procedures “will only be successful if those tasked with ensuring compliance exercise due diligence when conducting screenings and inspections,” investigators wrote.

A report by the Health and Human Services Department’s inspector general in December 2006 found that almost one-third of the 1,581 medical suppliers it visited in south Florida did not have an office at the business address they provided Medicare, even though they collectively had submitted claims for hundreds of millions of dollars.

The GAO cited several recent fraud cases to highlight the problem:

-One Florida businessman submitted claims from three fake medical supply companies in excess of $5.5 million from October 2006 through March 2007 and received $77,000 from Medicare. One company used a utility closet as its address; HHS investigators found buckets of sand mix and road tar, but no medical files, office equipment or telephone. The owner also stole personal ID numbers from doctors. In August 2007, he was sentenced to 37 months in prison for conspiracy to commit health care fraud and made to forfeit his Miami home and Rolls Royce.

-One former secretary of a fraudulent medical supplier said she started her own fake company by renting an office in the same location. She purchased fake invoices and then provided her former employer kickbacks to have access to Medicare beneficiary numbers. From January 2006 to April 2007 she submitted $1.5 million in claims for urinary bags, canisters and air mattresses; Medicare paid the company $372,286. She was sentenced for fraud in January to 30 months’ imprisonment and three years of supervised release.

The GAO study is the latest to detail potential fraud and waste in the billion-dollar government-run health program for the elderly and disabled. Last month, a bipartisan report by the same Senate subcommittee found that medical suppliers collected as much as $93 million in fraudulent Medicare claims based on prescriptions from dead doctors.